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Reading time: 3 minutes
Net worth is the difference between the value of what we own and the total amount that we owe.
It’s one way to tell if we’re really getting ahead. Knowing our net worth helps us set goals for our money, make financial plans and track our progress. The most important thing with net worth is not how high it is, but rather which direction it’s headed – may it always be trending up!
Net worth is a way of measuring our wealth. It's the amount of cash we'd have if we sold everything and paid off all our debts today. Overall, our financial goal should be to increase and protect our net worth over time, for ourselves and for our people.
The safest way to improve our net worth is to reduce the amount we owe, rather than relying on the value of the things we own to increase. For example, property values can fall at times. Rising interest rates will also increase the cost of our debt.
As long as we’re either paying down debt or saving and investing, our net worth will head upwards.
Net worth is important when we're thinking about retirement. Most of us want to be debt-free, ideally own a house and have some money to live on when we retire. So before retiring, our main financial goal should be to increase our net worth over time.
Once we retire, however, our goal may be to reduce our net worth, by using up our savings or selling assets to fund our retirement. But we need to make sure we don’t run out of money before we run out of time!
It's easy to work out your current net worth with Sorted’s net worth calculator. Once you figure out the difference between what you own and what you owe, you can set targets for the future.
Knowing your net worth will help you set goals, which you can review every year or so.
These goals could be, for example, to reduce debt, increase savings or to buy an asset like your own home. To set and work on your goals, head to the goal planner.
Guide
One of the best habits we can get into is “paying ourselves first” and making it automatic. The more we get into saving, the easier it is to achieve our goals and get ahead.
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Guide
At Sorted, we’re keen to see you getting ahead financially and growing your money for the long term. Now generally,…
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Guide
Investing is the best way to grow wealth and get our money working for us – but how? There are many kinds of investments out there, each with its own level of risk and return. The higher the potential return, the higher the risk that we might not get all our money back.
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Guide
Instead of investing directly and doing it all ourselves, we can invest in a managed fund where our money is pooled with other investors’ money and spread across different kinds of investments. A fund manager chooses the investments, and each investor owns a portion of the total fund.
Managed funds can be a great way for beginners to wade into the waters of investing, as it doesn’t take much to get started. They also make it easier to manage risk by spreading our investments across a range of assets and products. KiwiSaver is a good example.
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Guide
Lots of New Zealanders own rental property – it has been a popular form of investment over the years. The difference between an investment property and our own home is that we earn an income from it. Returns from property investment come from rental income and from any increase in the value of property over time.
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Guide
When we buy a bond, we’re lending money to a government, council or company.
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Guide
Einstein called it the ‘eighth wonder of the world’. He was talking about compound interest, which supercharges our savings and investments. But it can also increase the cost of our debt. Either way, over the long run, we’re talking serious dosh!
The best compounding happens when any interest we earn gets reinvested and earns even more interest. It’s interest earning interest, and our money is working for us instead of us working for it!
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Guide
When we buy a share, we're buying a small part of a company and a share in any profit the company makes. We can buy shares directly or own them through a managed fund like KiwiSaver.
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Guide
Savings accounts and term deposits with a bank, credit union or building society are convenient for saving.
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Guide
Not just anyone can call themselves a financial adviser. They have to meet a certain standard of competence and put your interests first.
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